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Replies to post #176381 on Biotech Values
In the case of Hep C, the potentially large market opportunity (>$15 bn in peak annual sales
by our estimates) would appear to be squarely in the sights of market leader GILD and to a
lesser extent ABBV, both of which may receive FDA approval by the end of 2014. However,
we see room for follow-on Hep C therapies and believe MRK is well positioned to enter the
market with a competitive all oral Hep C regimen, albeit slightly late. Our analysis of Hep C
market evolution suggests that MRK could offer a differentiated profile based on
preliminary results of phase 2 studies. While we note GILD and ABBV both have next
generation Hep C regimens with potential advantages in development behind MRK, keypoints of differentiation in favor of MRK may include dosing, pill burden, broad coverage of
genotypes, efficacy and potentially price. We view pricing as an interesting competitive
dynamic because MRK pioneered the use of oral protease inhibitors for Hep C with Victrelis
in 2011 and has successfully used price to its advantage. With the recent public uproar over
Hep C pricing, we would anticipate some level of price competition once there are multiple
players in the oral Hep C market and the high degree of price sensitivity amongst payors
could work in MRK’s favor as a late entrant. Our $725 mn 2020E sales estimate for MK-
5172/MK-8742 is roughly in line with consensus providing room for upside post-EASL as it
assumes just 5% share of the total Hep C market.
Exhibit 2: Our analysis of Hep C market evolution suggests room for innovation creating opportunity for late entrants
Based on preliminary phase 2 data, MRK may offer a differentiated profile
Company Treatment Regimen ribavirin Peg-interferon Pill Burden Duration Genotypes Naïve Cure Rate Exp. Cure Rate Single Agent Price Total Price
MRK Victrelis Yes Yes 4 pills tid 24 to 44 wks 1 72% to 79% 63% to 66% $49,000 $74,000
VRTX/JNJ Incivek/Incivo Yes Yes 2 pills bid 12 wks 1 63% to 66% 59% to 66% $66,000 $89,000
GILD Sovaldi Yes Yes 1 pill qd 12, 24 wks 1, 2, 3, 4 ~70% to 90% ~70% to 90% $84,000 $109,000
GILD Sovaldi/ledipasvir G1 only No 1 pill qd 8, 12 wks 1, 2, 3, 4 93% to 98% 94% to 99% n/a n/a
ABBV ABT450r/267/333 Yes* No 3 plus 1 (bid) 12 wks 1, 4 96% to 99% 96% to 100% n/a n/a
MRK MK-5172 and MK-8742 No No 1 pill qd 8, 12 wks 1, 2, 3, 4, 5, 6 96% to 100% n/a n/a n/a
Ideal Target No No 1 pill qd n/a 1, 2, 3, 4, 5, 6 100% 100% n/a n/a
**IMS prescription data for Sovaldi were released today for the week ending 4/4/2014, the 17th week of launch. We note
IMS made downward adjustments to some prior prescription data.
**The week's total Sovaldi prescriptions were 8,006, a change of +7.69% vs. last week's 7,434.
**The week's new Sovaldi prescriptions were 3,897, a change of +0.49% vs. last week's 3,878 .
**Plugging this into our proprietary Sovaldi projector, we believe U.S. Sovaldi sales could reach the following under these
scenarios:
(1) Base case - secondary warehousing - growth in new patient starts slows Q2-Q3 then picks up again Q4 - $9.4B from
$8.4B
(2) Rapidly decaying Sovaldi new patient starts throughout remainder of year (bear case) - $7.6B from $6.8B
(3) Sovaldi new patient starts level off for rest of year -$12.2B from $11B
(4) Week-over-week NRx changes match those seen with Incivek+Victrelis at same point in launch - $11.1B from $11.6B
**We note a caveat is that there is limited data to extrapolate IMS's capture rate with only one quarter of actual historical
sales until Q1 2014 is reported.
**BOTTOM LINE: We expect this increase in new Sovaldi prescriptions to provide assurance that some room for
additional adoption remains. Our base case projection increased this week because we still model new patient starts
declining in Q2 and Q3 as initial ''warehoused'' patients are worked through, though it is looking like that potential decline
may not ultimately be as steep. Scrips trends remain highly encouraging, and while these will not address long-term
concerns about pricing and out-year sustainability, we believe Sovaldi remains off to about as good a start this year - in a
non-optimal regimen, no less -- as one could have imagined. We remain positive on GILD based on the long-term Sovaldi
opportunity, the solid HIV foundation, and the underappreciated pipeline.
AI
